Endogenous monitoring in a partnership game
- The American Economic Review
- 110(3), Mar, 2020: p.776-796
I consider a repeated game in which, due to imperfect monitoring, no collusion can be sustained. I add a self-interested monitor who commits to obtain private signals of firms' actions and sends a public message. The monitor makes an offer specifying the precision of the signals obtained and the amount to be paid in return. First, with a low monitoring cost, collusive equilibria exist. Second, collusive equilibria are monitor-preferred. Third, in monitor-preferred equilibria, firms' payoffs are decreasing in the discount factor. My model helps explain cartel agreements between self-interested parties and firms in legal industries in the United States and Europe. – Reproduced
Market structure, Pricing, Monopolization strategies, Stochastic and dynamic games, Evolutionary games, Repeated games